The Reserve Bank of India (RBI) likely stepped into the foreign exchange market on Monday, according to five traders who spoke to Reuters news agency, as the Rupee faced pressure following a sharp surge in oil prices after conflict erupted in the Middle East over the weekend.

The traders said the central bank’s Dollar sales, carried out through state-owned banks, were measured rather than forceful and appeared aimed at curbing excessive volatility instead of defending a particular exchange rate level.

At the time of writing, the Rupee was trading at 91.3750 against the Dollar, down almost 0.4%, after earlier slipping to 91.4250.

Other Asian currencies also declined, and regional stock markets posted losses as investors pulled back from riskier assets globally.

One trader noted that the RBI was active in the market, though its intervention was “very mild.” They added that portfolio flows, possibly linked to the rebalancing of a global equity index, also played a role in the Rupee’s movement during the session.

Furthermore, India’s benchmark equity indices, the BSE Sensex and the Nifty 50, each fell by more than 1%. Meanwhile, the yield on the country’s 10-year benchmark bond climbed over 3 basis points to 6.6955%.

Brent crude futures were last trading nearly 6% higher on the day, after earlier climbing to an intraday high of $82 per barrel.

“Higher oil prices present a compounded risk on top of the weak capital flows which have already been weighing on the Rupee,” stated Dhiraj Nim, an economist and FX strategist at ANZ.

The Middle East accounts for slightly more than half of India’s crude oil imports, and analysts caution that any prolonged conflict there could trigger wider macroeconomic spillovers worldwide.

"If oil prices remain elevated for a while, they could raise troubles for Indian government bonds as well which have already been struggling with concerns over elevated fiscal supply," ANZ's Nim said.

Moreover, two additional traders said the central bank was also likely operating in the non-deliverable forwards market to help steady the Rupee.